The Future of Active Investment Management

Wall Street Group Explores the Challenges of Artificial Intelligence and Models of Passive Investing

On March 14, the Yeshiva University Wall Street Group held a panel discussion on “The Evolution of Active Investment Management.” Hosted by DLA Piper, the panel featured Dan Schwartz ’88YC (Co-CEO, York Capital Management) and Michael Mendelson (Principal at AQR, a global investment management firm). Ahron Herring ’91YUHS, ’95YC, chief investment officer at YU, moderated the discussion.

(l-r): Michael Mendelson, Dan Schwartz, Ahron Herring

In introducing the panelists, C. Howard Wietschner ’84YUHS, ’88YC—a member of the executive board for the Rabbi Isaac Elchanan Theological Seminary and the YU Investment Committee—expressed his thanks to the Wall Street Group for their efforts to “bring together a packed room like this where we can share and hear wisdom from our esteemed colleagues and for each of us to appreciate the resources that Yeshiva University makes available.”

In response to questions from Herring, the panelists assessed the degree to which the increase in low- or no-fee passive investing by investors (through such vehicles as index funds or exchanged traded funds) and the algorithms of artificial intelligence have affected the investigative and advisory functions of active investment managers.

Both Schwartz and Mendelson agreed that the areas where active investment management still adds value to the search by investors for returns beyond the average have gotten smaller. Mendelson said that the “pool of capital for fees is smaller, which makes our jobs harder,” and Schwartz noted that “there isn’t much emphasis these days on the star equity hedge fund manager.”

However, both felt the role of algorithms in investing has been overrated. Schwartz said that “people react to people, not machines” when making their investment decisions, and Mendelson said that while machines have helped systematize many functions, they haven’t changed the fact that “active management is difficult because it’s competitive, not because artificial intelligence is involved.”

Both agreed that where active management is effective is in helping investors with their portfolio diversification, and Mendelson noted that there was a still a need for the “idiosyncratic discovery” that a human mind can find and a machine cannot.

In response to a question from Herring about what skills people need to navigate this changed world, Schwartz cited as crucial an understanding of computer programming along with some level of coding experience, while Mendelson emphasized that “common sense and the ability to talk to people” are as important, if not more so, than any technical training.

In his concluding remarks, Herring observed that “there is often a messy transition period when new technologies are adopted” and that much of the current uncertainty is a sign of the industry going through the same disruption that other industries have been going through as they adjust to a new balance between machines and people.

He added, “One of the responsibilities of thoughtful investment management is education. As a leading educational institution, Yeshiva University has an important contribution to make in assisting students, alumni and industry participants as they make sense of the economic, social, and ethical dimensions of an ever-more-complex financial world. Tonight, we shared the big picture, giving participants a perspective on current issues in a historical context.” He also thought the event was a lot of fun. “The pre- and post-event networking was lively, with fund managers discussing internship programs and hiring opportunities, mid-career professionals making connections in new areas of the industry, and old friends reconnecting.”

Lawrence Askowitz ’87YC, co-chair of the Wall Street Group Committee, was also extremely pleased with the event. “Once again, we had a standing room-only crowd of alumni and friends come out to listen to leading experts share insights about their areas of domain expertise. The participants also got to enjoy the camaraderie and networking with other high caliber professionals in a warm and friendly environment. In turn, the alumni are giving back to the school by mentoring and teaching the students and getting them internships and jobs on Wall Street. It’s a win-win for everybody.”